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More REITs than You Realized; What are Mortgage REITs?

In a nutshell, a Mortgage REIT, sometimes called an MREIT, is a REIT that makes or buys mortgages or other loan obligations and gathers revenue primarily from the interest.

This means that rather than making money through owning rental properties as many REITs do, Mortgage REITs make money from the interest of the loans they make or through buying mortgage-backed securities (MBS). The loans are secured by real estate collateral and Mortgage REITs provide financing for either residential or commercial markets or sometimes both.

While less common than other types of REITs (Mortgage REITs make up fewer than 10% of REITs), Mortgage REITs have relatively high dividends. They also tend to finance their acquisitions of mortgages and MBS more through equity capital rather than borrowing. Mortgage REITs are subject to business risks that affect other financial firms, such as changing interest rates, credit risk, and prepayment or rollover risk.

Learn more about other REIT terms in the DI Wire’s glossary by clicking here.